REVIEW ON: INVENTORY MANAGEMENT

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The pharmacy is one of the most extensively used facility in healthcare where a large amount of money is spent for
purchasing medicinal items. In pharmacies, various drugs are being stored for supporting the therapy of patients.
Due to the variety of pharmaceutical items, it is a difficult task to control and manage the quantity of drug. For a
better and effective service management in a pharmacy, it is required a drug that must be provided continually at
correct time and quantity to sustain steady in supply. This can be accomplished by efficient inventory management
of pharmacy by providing control on important drugs, and deciding on priorities in purchase and distribution.
Therefore, the inventory management is ensures significant improvement for both patient care and optimal use of
resources. Three important methods regarding inventory management practice were studied such as ABC (Always,
Better, Control) analysis, VED (Vital, Essential, Desirable) analysis, and ABC-VED matrix analysis.
Keywords- Drug Inventory Management; Pharmacy; ABC; VED

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REVIEW ON: INVENTORY MANAGEMENT

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Description:

The pharmacy is one of the most extensively used facility in healthcare where a large amount of money is spent for
purchasing medicinal items. In pharmacies, various drugs are being stored for supporting the therapy of patients.
Due to the variety of pharmaceutical items, it is a difficult task to control and manage the quantity of drug. For a
better and effective service management in a pharmacy, it is required a drug that must be provided continually at
correct time and quantity to sustain steady in supply. This can be accomplished by efficient inventory management
of pharmacy by providing control on important drugs, and deciding on priorities in purchase and distribution.
Therefore, the inventory management is ensures significant improvement for both patient care and optimal use of
resources. Three important methods regarding inventory management practice were studied such as ABC (Always,
Better, Control) analysis, VED (Vital, Essential, Desirable) analysis, and ABC-VED matrix analysis.
Keywords- Drug Inventory Management; Pharmacy; ABC; VED

CODEN [USA]: IAJPBB ISSN: 2349-7750

INDO AMERICAN JOURNAL OF

PHARMACEUTICAL SCIENCES http://doi.org/10.5281/zenodo.1236759

Available online at: http://www.iajps.com Review Article

REVIEW ON: INVENTORY MANAGEMENT

Usha Pokhariya*and Prashant Mathur1 *Department of Clinical Pharmacy, Division of Pharmaceutical Sciences, Shri Guru Ram Rai Institute of Technology and Sciences, Shri Guru Ram Rai University, Dehradun, 248001, Uttarakhand, India 1 Department of Clinical Pharmacy, Division of Pharmaceutical Sciences, Shri Guru Ram Rai Institute of Technology and Sciences, Shri Guru Ram Rai University, Dehradun, 248001, Uttarakhand, India Abstract: The pharmacy is one of the most extensively used facility in healthcare where a large amount of money is spent for purchasing medicinal items. In pharmacies, various drugs are being stored for supporting the therapy of patients. Due to the variety of pharmaceutical items, it is a difficult task to control and manage the quantity of drug. For a better and effective service management in a pharmacy, it is required a drug that must be provided continually at correct time and quantity to sustain steady in supply. This can be accomplished by efficient inventory management of pharmacy by providing control on important drugs, and deciding on priorities in purchase and distribution. Therefore, the inventory management is ensures significant improvement for both patient care and optimal use of resources. Three important methods regarding inventory management practice were studied such as ABC (Always, Better, Control) analysis, VED (Vital, Essential, Desirable) analysis, and ABC-VED matrix analysis. Keywords- Drug Inventory Management; Pharmacy; ABC; VED Corresponding author: Usha Pokhariya ,Email: ushapokhria@gmail.com QR code Department of Clinical Pharmacy, Division of Pharmaceutical Sciences, Shri Guru Ram Rai Institute of Technology and Sciences, Shri Guru Ram Rai University, Dehradun, 248001, Uttarakhand, India Please cite this article in press Usha Pokhariya*and Prashant Mathur., Review on: Inventory Management, Indo Am. J. P. Sci, 2018; 05(04).

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INTRODUCTION: management and production planning and scheduling

The advent of advanced medical technology is have become evident.[9] World Health Organization resulted in a disproportionate increase in the suggested that no single individual should have total expenditure on health care. Therefore, a hospital control of pharmaceutical purchasing and spends about one-third of its budget on purchasing procurement. A designated is purchasing committee materials and supplies including medicines.[1] In will review and approve all purchases.[10] pharmacy, a few areas where a large amount of Inventory money is spent on buying items and it is one of the Any stock that a firm keeps to meet its future most extensively used therapeutic facilities of the requirement of production and sales is called hospital.[2] Hospital supply system should ensure “INVENTORY”. The basic reason for holding adequate stock of all the required items to maintain inventory is to keep up to the production activities uninterrupted supply. This evokes. the effective and unhindered. It is neither physically possible nor efficient inventory management of pharmacy store by economically justifiable to wait for the stock to arrive keeping a close supervision on important drugs, at the time when they ate actually required. prevention of pilferage, and priority setting in Therefore, keeping of inventory is necessary for the purchase and distribution of drugs. A study suggested efficient working of an organization.[11] that review for expensive drugs could bring out 20% The proper control need in inventory as it is one of savings in pharmacy store budget. Hence, the the largest assets of an organization. Inventories essentiality of inventory management is articulate.[3] should be neither excessive nor adequate. If Inventory is represents an important decision inventories were kept at a high level, higher interest variable at all stages of product manufacturing, and storage costs would be incurred; on the other distribution and sales, in addition to being a major hand, a low level of inventories may result in portion of total current assets of many business. frequent interruption in the production. schedule Inventory usually represents approximately 40% of resulting in under utilization of capacity and lower the total capital of industrial organizations. It sales. The main objective of inventory management comprises 33% of company assets and 90% of is to determine and maintain the optimum level of working capital. Inventory constitutes a major investment in inventories, which help in achieving segment of total investment. It is crucial that good the required objective. The Inventory Management is inventory management be practised to ensure growth control operating costs and provide better and profitability.[4] The principal goal of inventory understanding.[12] management is to balance the conflicting economics of not wanting to hold too much stock.[5] Drug Definition and Concepts inventory management desire at cost containment and In pharmacy operations, inventory is referred to the improved efficiency.[6] The inventory management stock of pharmaceutical products confined to meet is bring out significant improvement not only in the future demand. Inventory represents the largest optimal use of resources but also in patient care. current asset, as well as liquid asset inpharmacy Continuous management can provide the value added practice and its value continues to rise because of the services to the patients.[3] Inventory control is very growth in variety and cost opharmaceutical products. essential in a developing country like India. India is a Inventory management is defined as the continuing country of scarce resources and it is the primary “process of planning, organizing and controlling responsibility of each hospital to ensure optimum inventory” that aims at “minimizing the investment in utilization of available resources to provide good inventory while balancing supply and demand”.[13] service or quality patient care.[7] Inventory management refers to all the activities which is involved in developing and managing the Historical review of inventory management inventory levels of raw materials, semi-finished Historically, inventory management is often meant materials (work-in-progress) and finished good so too much inventory and too little management or too that sufficient supplies are available and the costsof little inventory and too much management. Inventory over or under stocks are low.[14] The cost of management is generated .as technological progress maintaining inventory is included in the final price has increased the organizations abilities to produce paid by the consumer. Good in inventory represents a goods in greater quantities, faster and with multiple cost to their owner. The manufacturer is the expense design variations. There can be severe penalties for of materials and labour. The wholesaler also funds excesses in either direction. The public has tied up.The basic goal of the researchers is to compounded the problem by its receptiveness to maintain a level of inventory that will provide variations and frequent design changes.[8] Since in optimum stock at lowest cost.[15] mid 1980s, the strategic benefits of inventory

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Another author accent that inventory management in  Finished Goods:

its expansive perspective is to keep the most Finished goods inventories are those completely economical amount of one kind of asset in order to manufactured products which are ready for sale. facilitate an increase in the total valueof all assets of Stock of raw materials and work in progress the organization – human and material resources.[16] facilitate production. While stock of finished The chief objective of inventory management and goods is required for smooth marketing control is to inform managers how much of a good to operation. Thus, inventories serve as a link re-order, when to re-order the good, how frequently between the production and consumption of orders should be placed and what the appropriate goods.[22] safetystock is, for minimizing stock outs. The overall goal of inventory is to have what is needed, and to Functions of Inventory: minimize the number of times one is out of stock.[17] 1. To meet anticipated customer demand. These In future demand, inventory is a stock of goods that is inventories are referred to as anticipation stocks maintained by a business in apprehension.[18] This because they are held to satisfy planned or definition is also supported by author who stressed expected demand. that inventory management is an impact on all 2. To meet production requirements. Firm that business functions, particularly operations, experience seasonal patterns in demand often marketing, accounting, and finance. He established build up inventories during off- season to meet that there are three motives for holding inventories, overly high requirements during certain seasonal which are transaction, precautionary and speculative periods. Companies that process fresh fruits and motives. The transaction motive occurs when there is vegetable deal with seasonal inventories. a need to hold stock to meet production and sales 3. To decouple operations. The buffers permit requirements.[19] other operations to continue temporarily while the problem is resolved. Firms have used buffers Inventory-Associated Costs of raw materials to insulate production from The four types of costs associated with inventory in disruptions in deliveries from suppliers, and pharmacy practice: acquisition costs, procurement finished goods inventory to buffer sales costs, carrying costs, and shortage costs.[20-21] operations from manufacturing disruptions. Acquisition cost is the net amount of money the 4. To protect against stock-outs. Delayed pharmacy pays for the products. Procurement costs deliveries and unexpected increases in demand represent the costs associated with purchasing of the increases the risk of shortages. The risk of products, which include placing and receiving orders, shortage can be reduced by holding safety stocking and paying invoices. Carrying costs refer to stocks, which are stocks in excess of anticipated costs associated with product storage, which also demand. include costs induce as a result of crisis, e.g. theft or 5. To take advantage of order cycles. Inventory damage. Shortage costs, is also known as stock-out storage enables a firm to buy and produce in costs, that are having the costs of not having the economic lot sizes without having to try to match product on the shelves when needed. purchases or production with demand requirements in short run. Types of Inventory 6. To hedge against price increase. The ability to The three main types of inventories are raw materials, store extra goods also allows a firm to take work-in-progress, & finished Goods. advantage of price discounts for large orders.  Raw Materials: 7. To permit operations. Production operations Raw Materials are those inputs that are converted take a certain amount of time mean that there into finished product through the manufacturing will generally be some work-in-process process. Raw material inventories are those units inventory.[23] which have been purchased and stored for future productions. Inventory Management Process Among the essential eight roles of the pharmacist that  Work-in-Progress: are described by the World Health Organization and Work-in progress, also called stock-in-progress. the International Pharmaceutical Federation, These inventories are semi manufactured managing resources (money, material, manpower, products. They represent products that need more time, and information) is a key factor to professional work before they become finished products for success on individual level, as well as organizational sales. level .[24]

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ABC Analysis VED Analysis

ABC (Always, Better, Control) analysis is a VED analysis is based on priority and importance to significant and well-known analytical tool in patients. health.[28] It divides the items into three inventory management.[26] It was first developed in categories as Vital (V), Essential (E) and Desirable the 1950s and aims to gain managers interest on the (D). V class drugs are life-saving like vaccines, and it critical few (A-items) and not on the insignificant is needed for life support (e.g., some antibiotics, many (C-items). It divides items into three classes as serums, insulins, digoxin etc.) It must be available in A, B and C. It can be managed and controlled the pharmacy stocks at all times. E class drugs, is separately. A-items constitute only 10% of all lower severity, are efficient for therapy of less life inventory items. They have to be under strict control threatening, but still serious diseases (e.g. antibiotics, of higher management. as they consume the top 70%- ranitidine, chloroquine, phenytoin and etc.) It may be 80% of the total inventory consumption value of the available in the pharmacy stocks. The remaining company. B-itemsis the interclass items which drugs with lowest severity, which is used for therapy include 20% of total inventory items. They require to of slight diseases, it is included in D class drugs. The moderate control by middle management since they absence of these drugs is notnoxiousto the health of consume 20% of annual consumption value, on the the patients e.g., Vitamin E capsules, sun screen contrary,.C-items isneeded control by lower lotions.[6] management, account for 70% of total inventory items and consume 10% of the annual consumption ABC-VED Matrix Analysis value. The main restriction of ABC analysis is that it Effective and efficient inventory control can be depends upon price and the percentage of usage of practiced on the items by considering both VED the products. The importance of items cannot be analysis and ABC analysis. Table 2, ABC-VED considered entirely. It is not enough for inventory inventory matrix analysis is created, by combining management since an item which has low capital the ABC and VED analysis. By cross-tabulating of investment and consumption may be staminal or life- these analysis nine different subcategories (AV, AE, saving. The criticality (vitality) of an item is also be AD, BV, BE, BD, CV, CE, and CD) are considered for development of management tool for obtained.[29] ABC-VED matrix provides more inventory control. The limitation of ABC analysis is meaningful control over the material supplies and based only on monetary value and the rate of divides items into three main categories: Category I, consumption of the item. In a hospital, an item of low Category II, and Category III. Category I items monetary value and consumption may be very vital includes vital and expensive. It is consist of six or even life saving. Their importance cannot be subcategories (AV, BV, CV, AE, and AD).And it is overlooked simply because they do not appear in need control by top of management. Category II category A. Therefore, another parameter of the includes essential with low cost items (BE, CE, BD). materials is their criticality.[27] Category III consists of the desirable with least cost items (CD).

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Among various inventory control model ,Economic inventory reaches zero. A fixed cost is charged for order quantity (EOQ) has been commonly used, each order placed, regardless of the numberof units which attempts to the balance the carrying cost with ordered. EOQ along with ABC-VED analysis is the cost of running out of the items.[30] It is the level proposed to be the most effective and efficient model of inventory that minimizes total inventory holding for inventory control.[31] Most of the savings with costs and ordering costs. EOQ only applies when the ABC-EOQ is reported with the low valueitems (B demand for a product is constant over the year. and and C items) which were being purchased too each new order is delivered in total when the frequently.[32]

Representation of EOQ: EOQ can be determined with the help of the following formula : E.O.Q. =

Figure 2: EOQ Model Cost Curves[33]

Factors affecting inventory management pharmacists should hire credible and candid The following factors is taken in account when employee, proper security and observation training evaluating pharmacy inventory management:product and monitoring strategies are also important. In type (generic, brand), inventory size, unclaimed addition, relevant security regarding controlled prescriptions, inventory shrinkage,returned product substances should be a priority in monitoring policies and use of formularies.[13] Generic products shrinkage, especially when theft of these substances consist lower acquition costs compared to bran- is ever more challenging. In hospital pharmacies, named counterparts,thereby minimize inventory formularies are utilized to enhance inventory costs. Most product vendors (manufacturers and management, where pharmacists can carry one wholesalers) have policies regarding products it may therapeutic equivalent product within a class of be returned. Examples of such policies include medications; thereby reducing overall inventory cost. providing credits for future orders, product However, limited lists and formularies could serve as replacement and cash back to the pharmacy. About an impediment in balancing supply and demand in 1.5% of all prescriptions filled by community community pharmacy settings.[35] pharmacies remain unclaimed. Pharmacists should monitor such prescriptions and specify a threshold The Role of Information Technology in time period (e.g. 2 weeks) for returning the product InventoryManagement tothe shelves.[34] Up to 4.5% of community The value of information technology can be pharmacy sales is lost due to inventory shrinkage. recognized inpharmacy inventory management, Inventory shrinkagereferred to losses due to theft,. where computerized systems are broadly available in shoplifting, and robbery. Unfortunately, employee virtually all pharmacy practice settings in theft comprisesthe largest source for inventory industrialized countries. Technology makes the shrinkage incommunity pharmacy settings. While methods of inventory management. and methods of